I mean, imagine looking out your window during
basically the absolute worst starvation crisis
in American history and you're watching the federal
government pay farmers to just slaughter six
million pigs and let the meat literally rot in
the sun. Yeah, it sounds completely absurd. Right.
Or watching them actively plow under 10 million
acres of perfectly good growing cotton while
people are walking around in actual rags. I mean,
it sounds like absolute madness, like a cartoon
villain's plot or something. It really does.
But in 1933, it was a desperate calculated mathematical
equation, right, designed to basically save the
United States from total collapse. So welcome
to our deep dive. Today we are looking at a massive
encyclopedic breakdown of Franklin Delano Roosevelt's
New Deal. Yes, specifically spanning from 1933
to 1938. Exactly. And our mission for this deep
dive is to really cut through the heavy historical
jargon. We want to understand exactly how these
policies function under the hood, you know, how
they permanently altered the very DNA of the
American government. And we're going to explore
that fiercely debated question of whether they
actually worked at all. And, you know, to really
understand the mechanics of what the government
was trying to do, we have to grasp the sheer
paralyzing terror of the moment. Right. Because
before any physical rebuilding of the country's
infrastructure could even be discussed. I mean,
the government had to conquer a nationwide psychological
panic. It was an atmosphere of complete and utter
dread. Yeah. I want you, the listener, to really
put yourself in that headspace right now. Imagine
waking up in early March 1933. You look at the
newspaper. A quarter of the entire American workforce
is completely unemployed. Which is just staggering.
It is. Manufacturing output has plummeted by
a third. And worst of all, 40 % of all banks,
we're talking over 9 ,000 individual banks across
the country. across the country have just failed.
Just completely vanished. Vanished. There is
no unemployment insurance to fall back on. There
is no social security and your life savings like
the money you work decades for. It might literally
be trapped behind the locked glass doors of an
insolvent bank and you have no legal recourse
to get it back. It is the absolute definition
of a systemic heart attack. And the psychology
driving that banking collapse is It's a self
-fulfilling prophecy really how so well when
people simply heard a rumor that their local
bank might be in trouble They rushed to withdraw
their funds, but you know banks don't keep everyone's
money in a single vault Right, they lent it out.
Exactly, they lent it out. So when everyone demands
their cash at the exact same moment, that bank
run actually causes the insolvency that the public
was terrified of in the first place. OK, let's
unpack this because we need to look at the mechanics
of the first hundred days of the Roosevelt administration,
which was essentially a massive triage operation.
That's a great way to put it. Yeah, if the US
economy is a patient bleeding out in an emergency
room, you can't start prescribing a long -term
diet and exercise plan. You have to slap a tourniquet
on the wound. You have to stop the bleeding.
And the speed of that tourniquet being applied
was completely unprecedented in American history.
Roosevelt takes office, and within 48 hours,
he deters a bank holiday. Right. He essentially
suspends all banking operations nationwide. Every
single bank is ordered closed. Wow. And then
he gets on the radio for his very first fireside
chat and speaks directly to the American people.
He tells them, hey, these banks will not be allowed
to reopen their doors until federal reviewers
have audited them and certified them as financially
sound. And the crazy part is it actually works.
Within days, three quarters of the banks in the
Federal Reserve System are allowed to reopen.
And instead of people rushing to pull their money
out, billions of dollars in hoarded cash and
gold flow back into the vaults. Because the trust
was back. Exactly. But the administration didn't
just unlock the doors and hope for the best,
right? They fundamentally changed the structural
rules of the game to ensure that trust was permanent.
They created the FDIC, the Federal Deposit Insurance
Corporation. Right, which insured individual
bank deposits up to $2 ,500 at the time. Yeah.
And they also passed the Glass -Steagall Act.
Now, what's fascinating here is the mechanism
behind Glass -Steagall. It wasn't just a regulatory
slap on the wrist. It built a massive legal firewall
between commercial banking and investment banking.
Break that down for us. What does that firewall
actually do in practice? Well, before Glass -Steagall,
if you deposited your weekly paycheck into your
local checking account, that bank could take
your life savings and go gamble it on risky stock
market speculation. Which seems insane today.
Right. And if their bets went bad, your money
evaporated. So Glass -Steagall effectively said,
look, if you take everyday deposits from average
citizens, you cannot play Wall Street casino
games with that money. You have to be a boring,
stable commercial bank. If you want to be an
investment bank, and take massive risks, you
absolutely cannot use everyday checking accounts
to fund it. That structural change is huge. And,
you know, I was looking through the source material,
and there's this brilliant contrast with Canada
that completely recontextualizes the banking
crisis for me. Oh, yeah, the Canadian system.
Yeah, yeah. Because if this depression was a
global catastrophe, why didn't this massive wave
of 9 ,000 bank failures happen? Everywhere. Canada's
right next door. And they didn't have a single
bank failure during this entire period. Not one.
It's amazing. But the Canadian miracle wasn't
magic. It was structural architecture. Canada
utilized a branch banking model that stretched
across provincial lines. OK. So a single bank
might have a branch in an agricultural town in
Alberta and another branch in a manufacturing
hub in Ontario. That gave them incredible geographic
and financial diversity. If a crop failed in
one province, the bank's other branches could
absorb the shock. While the United States relied
on this hyper fragmented system of tiny independent
local banks, banks. So if the local factory closed
or the local crop failed, that local bank had
no buffer. It just died. Exactly. And when those
thousands of local banks died, they took the
money supply down with them. The economist Milton
Friedman pointed out that this wasn't just about
people losing their savings. It was a macroeconomic
disaster. Right. When banks fail, credit vanishes.
When credit vanishes the entire money supply
of the country shrinks drastically and when there
are fewer dollars circulating in the economy
the price of everything drops. Which brings us
to the true monster of the Great Depression,
the deflationary death spiral. Yes. And we hear
that term deflation thrown around. And on the
surface, falling prices sound great. Like if
I'm broke, cheaper groceries sound like a win.
Why is a deflationary spiral a death sentence
for an economy? OK, let's walk through the math
on a micro level. Imagine you're a wheat farmer
in 1929. OK, I'm a farmer. You owe the bank $1
,000 for your tractor. At the time, you sell
your wheat for $1 a bushel. So you need to grow
and sell 1 ,000 bushels of wheat to pay off your
debt. Simple enough. Sounds doable. But then
the depression hits, the money supply shrinks,
and massive deflation takes hold. By 1932, the
price of wheat drops to 10 cents a bushel. Oh,
wow. So suddenly, to pay off that exact same
$1 ,000 debt, you don't need 1 ,000 bushels,
you need 10 ,000 bushels. Exactly. Your debt
has effectively multiplied by 10. without you
borrowing a single extra dime. That is brutal.
It becomes mathematically impossible to pay back.
So you default. The bank seizes your farm, but
the farm is worthless now, so the bank goes bankrupt.
Multiply that by millions of citizens and businesses,
and you have a completely frozen economy. Which
perfectly explains the next major triage move,
taking the US off the gold standard. Because
as long as the US dollar was rigidly tied to
a specific amount of physical gold, The central
bank was wearing a straight jacket. They couldn't
just print more money or aggressively lower interest
rates to fight that deflation. Because if they
did, investors would panic. They'd demand their
dollars be converted to gold and ship that gold
overseas. It would drain the country's reserves
entirely. So suspending the gold standard allowed
the dollar to float freely. The Federal Reserve
could finally expand the money supply. By printing
money, they were intentionally trying to cause
inflation to break that death spiral and allow
people to actually pay off their crushing debts.
And that gets us through the financial triage.
Right. So the bleeding is finally stopped. The
banks are stabilized. The currency is decoupled
from gold and the administration pivots. They
move from the financial emergency room to the
physical breathing economy, agriculture, and
industry. This is the era of the first New Deal.
The alphabet soup of new government agencies,
primarily the AAA. the Agricultural Adjustment
Administration, and the NRA, the National Recovery
Administration. And this brings us right back
to the hook of our deep dive, the slaughtering
of the pigs. Yeah, it remains one of the most
controversial and widely misunderstood economic
interventions in history. Because it just feels
so wrong. You have massive bread lines in cities
like Chicago and New York. People are starving.
And the government's grand solution is to pay
farmers to destroy millions of acres of cotton
and slaughter millions of piglets leaving the
meat to rot in ditches. Like how does destroying
the food supply help a starving nation? It comes
back to a concept the administration called parity.
The goal was to restore the purchasing power
of agricultural commodities to the golden years
right before World War I. You really have to
look at what happened in the 1920s. Okay what
happened? Rapid mechanization. The widespread
adoption of gas powered tractors, better chemical
fertilizers. It meant American farmers became
wildly efficient. They were producing mountains
of food. So they basically became victims of
their own success. Exactly. They flooded the
market. That massive oversupply crashed agricultural
prices well before the stocks market even crashed
in 1929. By 1933, prices were so insanely low
that harvesting a crop actually cost the farmer
more money than the crop was worth on the open
market. That is just mind -blowing. Wheat was
literally left to rot in the fields of Montana.
Sheep were slaughtered in Oregon and thrown into
canyons just to save on the cost of transporting
them to market. So the government realizes that
if the rural economy dies, the farmers can't
buy manufactured goods from the cities and the
factory workers lose their jobs anyway. Right.
The AAA steps in and creates artificial scarcity
by literally paying farmers to not grow crops
or to destroy existing livestock. They severely
reduce the total output. And that forced market
prices to rise back to a survival level for the
farmers. It was a brutal mathematical calculation.
But by 1937, it had rapidly doubled the average
income of landowning farmers. OK, so that's agriculture.
What about industry? Well, they attempted a similar,
heavily managed approach for industry with the
NRA, the National Recovery Administration. The
government essentially encouraged industries
to get together and create cartels. The Blue
Eagle campaign, right? Yes. Businesses that complied
got to display a Blue Eagle poster in their window.
It established minimum wages. It finally abolished
child labor, which was huge, but it also set
mandatory price floors. They made it a federal
crime for a business to lower its prices past
a certain point. Wait, hold on. This is where
the logic gets really twisted for me. If millions
of people are unemployed and completely broke...
How does making goods legally more expensive
help them? Wouldn't a price floor just price
starving people out of the market entirely? That
is exactly the criticism many economists level
at the NRA. But the administration's logic was
focused on the producers, not just the consumers.
They believed that cutthroat competition was
forcing businesses to slash prices just to survive.
And to afford those slash prices, the businesses
had to slash wages or fire workers. That destroyed
consumer demand, leading to more price cuts and
more wage cuts. The NRA price floors were an
attempt to put a hard floor under wages. If businesses
couldn't undercut each other on price, they wouldn't
need to slash their workers' pay to compete.
It's an incredible level of micromanagement,
though. I mean, the government is suddenly dictating
the price of a chicken in a local butcher shop
or how many hours a tailor can work. Yeah, it'll
lie. And while the administration thought this
was necessary, the Supreme Court took a look
at this unprecedented federal overreach and just
brought the hammer down. They did. The Supreme
Court unanimously struck down both the original
AAA and the NRA. They rule that the federal government
absolutely does not have the constitutional authority
to dictate local agricultural production quotas
or enforce granular industrial trade codes on
local businesses. Okay, so here's where it gets
really interesting. Because FDR is now completely
cornered. The Supreme Court just demolished his
primary emergency tools. And despite all the
bank fixes and the farm subsidies, by 1935, unemployment
is still hovering over 20%. The temporary bandages
aren't working. Right. And they aren't surviving
legal challenges. He realizes he needs something
permanent, something constitutional, and something
bulletproof, which leads us directly into the
second new deal. This is the critical pivot.
The Roosevelt administration shifts from treating
the Depression as a temporary emergency that
needs triage to viewing the American economy
as structurally flawed. They decide it requires
a permanent, institutionalized government safety
net. And the absolute crown jewel of this pivot
is the Social Security Act of 1935. It established
universal retirement pensions, unemployment insurance,
and welfare benefits for the handicapped and
needy children. And the way FDR structured the
funding is honestly a lesson in political immortality.
It really is. He completely refused to fund it
out of general tax revenue. He insisted it be
funded by a specific payroll tax taken straight
out of a worker's paycheck matched by the employer.
Right. When you look at your pay stub today and
see that FICA deduction taking a bite out of
your check, you're looking at the direct fingerprint
of FDR's 1935 strategy. There's an incredible
quote from the sources where FDR explains exactly
why he did it that way. He said, we put those
payroll contributions there so as to give the
contributors a legal, moral, and political right
to collect their pensions. With those taxes in
there, no damn politician can ever scrap my social
security program. It was brilliant. By tying
it directly to individual visible contributions,
he transformed it. It wasn't a government handout
that could be cut during a budget crisis. It
was an earned right that the citizen had paid
for. Alongside Social Security, we get the massive
structural jobs programs, most notably the WPA,
the Works Progress Administration. And this wasn't
just handing out checks. They eventually employed
over eight and a half million people. Yeah. And
we aren't just talking about digging ditches
here. Right. They built the infrastructure of
modern America. The Lincoln Tunnel, LaGuardia
Airport, thousands of hospitals, schools and
bridges. But the part that fascinates me the
most is the arts funding. Oh, the Federal Theater
Project, the Federal Writers Project, the Federal
Art Project. Yeah. The administration operated
on the premise that an unemployed artist, a musician
or a historian had just as much right to work
and eat as an unemployed brook layer. They hired
thousands of writers. I mean, they hired Zora
Neale Hurston to travel the South, recording
vanishing folklore and conducting oral history
interviews with former slaves. They created incredible
state guidebooks. It is a massive cultural undertaking.
But as we marvel at the sheer scale of this new
safety net, our sources require us to look very
critically at who it caught and who was intentionally
allowed to fall through the holes. Yeah, the
realities of discrimination baked into the New
Deal are stark and undeniable. While programs
like the WPA did hire Black Americans, they largely
operated in strictly segregated units, often
assigned to the most grueling physical labor.
And the discrimination goes much deeper into
the actual economic legislation we discussed
earlier. Take the NRA, which established those
federal minimum wages. It was heavily criticized
by Black leaders at the time. In fact, many in
the Black press dubbed it the Negro Removal Act.
because the unintended consequence of implementing
a strict federal minimum wage in a deeply prejudiced
society was devastating. Many white employers
simply refused to pay black workers the new higher
federal wage. Rather than pay them equally, they
fired them and hired white workers to take their
place. And then there is the housing sector,
which carries perhaps the most toxic lasting
legacy of the entire era. The New Deal created
the Homeowners Loan Corporation, the HOLC, and
the Federal Housing Administration, the FHA.
These were designed to back mortgages, offer
lower interest rates, and save millions of homes
from foreclosure. But in doing so, they institutionalized
a practice that defined American geography, redlining.
If we connect this to the bigger picture, we
see the exact mechanism of how generational wealth
was restricted. The HOLC didn't just hand out
loans blindly. They dispatched appraisers to
meticulously map out major American cities, grading
neighborhoods on their perceived financial risk.
And the determining factor for a high -risk neighborhood
was explicitly racial. The sources detail how
any neighborhood with what the government termed
inharmonious racial groups, which primarily meant
black residents, but also applied to certain
immigrant populations, was outlined on these
maps in red ink, marking it as a hazardous area
for investment. This wasn't some secret bias.
It was literal written policy. The FHA underwriting
manual explicitly warned against the infiltration
of incompatible racial groups. It meant that
if you were a black American, regardless of your
personal credit score or income, you were systematically
denied access to these federally backed low interest
mortgages. The government even required a real
estate developers building new suburban projects
to include racially restrictive covenants, legally
binding clauses in the property deed that banned
the future sale of the home to black buyers.
If that developer wanted federal backing. It's
awful. When you think about this, it's staggering.
These 1930s maps didn't just exist in the history
books of the Progression Era. They actively shaped
the zoning, the school districts, the segregated
geography, and the massive generational wealth
gap of the modern cities you live in today. Exactly.
Because for decades, homeownership was the primary
engine for middle class wealth creation, and
an entire demographic was locked out of the engine
room by federal design. The New Deal undeniably
rebuilt the American economy, but it built a
new structure on top of the existing deeply flawed
racial architecture of the 1930s. So what does
this all mean? We've explored the banking triage,
the agricultural paradoxes, the birth of Social
Security and the deeply unequal application of
these maps. It brings us to the ultimate million
dollar historical and economic debate. Did the
New Deal actually cure the Great Depression?
Well, there is absolutely no consensus among
economists on that question. Why? Oh, yeah. If
we break down the competing schools of thought
objectively, you generally see three distinct
narratives. Think of the American economy in
1933 as a car that is completely stalled out
on the highway. OK, stalled car. Got it. First,
you have the Keynesian economists. Their view
is that the car simply ran out of gas. Private
demand had collapsed, so the government needed
to step in and fill the tank with massive deficit
spending. They argue the New Deal successfully
halted the freefall and eased the suffering.
But? But, ironically, they believe SDR was far
too fiscally conservative. Oh, interesting. Yeah,
he hated deficits. Keynesians argue he never
pumped enough gas into the tank to actually restart
the engine. From their perspective, it took the
massive, unavoidable deficit spending of World
War II, building thousands of tanks and planes,
what they call military Keynesianism, to finally
achieve full employment. OK, so the Keynesians
say the New Deal is the right idea, but FDR didn't
press the pedal hard enough. What about the second
view? The second view comes from the monetarists,
most famously championed by Milton Friedman.
They look at the stalled car and argue that the
Federal Reserve actually broke the steering wheel
in the late 1920s by letting the money supply
shrink in the first place. Right, the deflation
we talked about. Exactly. For the monetarists,
the New Deal's banking reforms creating the FDIC,
dropping the gold standard, were brilliant and
entirely sufficient to fix the steering wheel.
But they argue that the heavy -handed micromanagement,
specifically the NRA's price floors and industry
cartels, acted like someone repeatedly yanking
the emergency brake. Oh, wow. They believe the
market would have naturally recovered much faster
if the government hadn't stifled business growth
with those regulations. So Keynesians say pump
more gas, monetarists say fix the bank and take
off the emergency brake. What's the third perspective?
The third is the new Keynesian, or expectations
theory. This argues that the recovery was almost
entirely psychological. When Roosevelt took office
and implemented these immediate radical regime
changes closing the banks, speaking directly
to the public, he instantly shifted the psychology
of the driver. The mindset of the public. Exactly.
For years, people expected prices to keep falling,
so they hoarded their money in fear. Overnight,
Roosevelt convinced the public that the government
was going to force prices up. Believing that
inflation was coming, people stopped hoarding
and started buying goods before they got more
expensive. It stimulated demand instantly. It
was a master class in manipulating public expectations
to change economic reality. It's fascinating
how the exact same historical data set can be
interpreted so differently by brilliant economic
minds. But it's crucial to remember that the
debate at the time wasn't just academic economics.
It was a massive, vicious, political, Rorschach
test. Oh, absolutely. And it's important to note
for you listening, we are merely reporting the
historical reactions found in the sources here.
We aren't endorsing any of these political views.
Yeah, the vitriol was intense. From the political
gore. Right, there were loud claims that the
New Deal was tantamount to fascism. Critics pointed
to the NRA's strict economic controls and the
Blue Eagle campaign, and they saw incredibly
uncomfortable parallels to the state -directed
command economies of Mussolini's Italy or Hitler's
Germany. There were also widespread, fervent
accusations of communism. Figures like Elizabeth
Dilling published fiery propaganda about the
Roosevelt Red Record, stoking national fears
that the federal government was actively being
infiltrated by Soviet agents aiming to destroy
American capitalism. And the criticism from the
political left was just as fierce, but for the
exact opposite reasons. New left historians and
contemporary radical critics argued that the
New Deal wasn't revolutionary at all. They argued
it acted as a mere band -aid, a calculated pacification
strategy designed specifically to preserve the
most exploitative elements of capitalism. Right,
to keep the system intact. Exactly. They criticize
Roosevelt for doing far too little to challenge
the power of massive corporations, for refusing
to nationalize the banks entirely, and for actively
ignoring the plight of sharecroppers, women and
minorities, just to keep Southern Democrats in
his voting coalition. Roosevelt was walking a
nearly impossible tightrope. He was trying to
cobble together enough reforms to save liberal
democracy and the capitalist system in a global
era where many other traumatized nations were
entirely abandoning democracy and falling to
extreme dictatorships on both the left and the
right. It really was one of the most precarious
moments in human history. To wrap all of this
up, regardless of whether you side with the Keynesians
or the monetarists and regardless of the fierce
political mudslinging of the era, there is one
undeniable structural fact. The New Deal. profoundly,
permanently transformed the power and purpose
of the federal government in the United States.
It took a nation with a strictly laissez faire
mentality, a country where your poverty or your
unemployment was viewed as your own personal
moral failure, or at best a problem for your
global church charity. And it shifted it into
a modern reality where the national government
takes active legal responsibility for the basic
economic security of its citizens. It completely
rewrote the American social contract. But there
is one final provocative thought from the source
material that I want to leave you with, and it
has to do with federalism. OK, let's hear it.
We spent this entire deep dive talking about
the massive, unprecedented expansion of federal
power during the 1930s. But that expansion deeply
aggravated state governments, who suddenly felt
like middle management. Right, because suddenly
politicians in Washington are dictating exactly
how relief money is supposed to be spent in local
backyards across the country. Exactly. And the
states didn't just roll over and accept it. Some
engaged in what historians specifically call
administrative sabotage. Administrative sabotage.
Yeah, there's a glaring example from Ohio where
the state governor mismanaged, delayed, and mishandled
federal relief funds so egregiously that the
Roosevelt administration eventually had to step
in, legally strip the state of its authority,
and completely federalize their local relief
efforts. That is wild. The state was actively
fighting the hand that was trying to feed its
own starving citizens just to protect its political
turf. It forces you to ponder a dynamic that
is still incredibly relevant today. Whenever
a massive new federal policy is announced, whether
it's regarding health care, infrastructure, spending
or education, the real battle isn't just fought
in the halls of Congress in Washington, D .C.
No, it's not. It's fought in the trenches of
your local and state governments. It's in how
your governor or your mayor chooses to implement,
delay or quietly sabotage that federal mandate?
It raises an important question for you to consider.
How much of the government that you experience
in your daily life is actually just this invisible
ongoing tug of war between federal ambition and
state resistance? That is a phenomenal point
to end on. It brings us right back to that emergency
room we started in. The federal doctors in 1933
rushed in, they slapped on the tourniquet, and
they forced the patient to swallow a completely
new, highly experimental regimen of medicine.
And while historians and economists will argue
forever about which specific pill actually cured
the disease, the reality is that the hospital
itself, the very structure of the American system,
was never, ever the same again. Thanks for taking
this deep dive with us.